Position Management

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The other day on CNBC Simon Hobbs and Melissa Lee were interviewing a portfolio manager who is a semi-regular on the network about his position in Apple (AAPL). The way I heard it, he started buying the stock for clients in 2003 and continued buying for new clients as they came aboard subsequent to that first purchase.

He said at no point has he sold any shares and so Simon and Melissa tried to pin him down on this point. During this cross examination the PM said some clients had their position grow to more than 10% but again no shares were sold and Simon and Melissa pretty much attacked him and most of what I heard from him were a couple of salesy comebacks like how can you lose money when you're up and he also seemed to be saying he does not think anything is wrong with the company. Simon actually accused him of not managing the position.

We'll get to the position management in a moment but I can imagine that this guy may not have been prepared for such a grilling. Maybe he brought that on himself just by what he said or maybe he submitted notes to them beforehand and the anchors planned to pursue this but either way I can believe he wasn't expecting such a rough segment.

It is also perfectly reasonable that this guy doesn't think anything is wrong with the company. He might be right, yes it is down a lot and I have drawn a different conclusion but he might turn out to be right. He could also be wrong. Being wrong about a company is not the worst thing, every manager gets some number of calls incorrect.

However it is not ok if he really did not manage the position as Simon alleged. What he described he had done sounded to me like not managing the position and obviously this was the point the anchors were making and he didn't really defend the inaction very well but not being clients or employees of the firm we can't know precisely what happened.

Any clients of his who had more than 10% in AAPL as he said up at $700 have endured a meaningful drag on their portfolios but I was wondering about that 10% figure he tossed out. According to Morningstar $10,000 put into AAPL ten years ago would have been worth $943,000 when the stock was at $700.

Let's say the firm has a $500,000 minimum, which is quite common and to keep the math simple we'll assume 100% equities, and ten years ago they allocated 1% to AAPL and never sold a share then at the September high the stock would have been worth $471,500. During this time period the S&P 500 TR was up about 95% so the $495,000 not put into AAPL ten years ago (assuming a market equaling return) would have grown to $965,000 so in this example AAPL would have been almost 34% of the portfolio.

Even if only 0.50% went into AAPL and the rest of the portfolio went up 150% it still works out that AAPL would have been 19% of the portfolio.

Obviously I've made several assumptions in trying to crunch these numbers but I can't figure how they could have bought ten years ago, not sold any stock and have the position only be around 10% of the portfolio at the peak.

The portfolio manager might not think his clients have lost anything because they are still up from where they bought in but I wonder how many of his clients who know, see it the same way as him.